Valero Energy Corporation (VLO) has posted second quarter 2012 income from continuing operations of $1.50 per share, surpassing the Zacks Consensus Estimate of $1.42 and last year’s earnings from continuing operations of $1.30 cents.
The year-over-year increase is attributable to higher throughput margins in the U.S. Mid-Continent, U.S. West Coast and North Atlantic. Further, the addition of the Pembroke and Meraux refineries increased the refinery throughput volume by 342,000 barrels per day.
Total revenue in the quarter increased nearly 11% year over year to $34,662 million from $31,293 million and outpaced the Zacks Consensus Estimate of $31,722 million.
Throughput Volumes
During the quarter, refining throughput volumes were approximately 2.66 million barrels per day, up nearly 15% year over year. By feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 33%, 23% and 15%, respectively. The remaining volumes came from acidic sweet crude, residuals, blend-stocks and other feedstock.
The Gulf Coast accounted for approximately 56% of the total volume. The Mid-Continent, North Atlantic and West Coast regions accounted for 15%, 18% and 11%, respectively.
Throughput Margins
Company-wide throughput margins decreased 78 cents per barrel year over year in the reported quarter.
Average throughput margin realized was $9.50 per barrel in the U.S. Gulf Coast (down from $11.30 per barrel in the year-earlier period), $17.61 per barrel in the U.S. Mid-Continent (up from $16.50), $8.01 per barrel in the North Atlantic (up from $3.36) and $10.95 per barrel in the U.S. West Coast (up from $10.65).
Total operating cost per barrel was $4.99 during the quarter, down 8.8% from the year-earlier quarter. Refining operating expenses per barrel were $3.59 versus $3.86 in the year-ago quarter. Unit depreciation and amortization expenses dropped more than 13% year over year to $1.40 per barrel.
Capital Expenditure & Balance Sheet
Second quarter capital expenditure totaled $800 million, including $106 million for turnarounds and catalyst expenditures. At the end of the quarter, the company had cash and temporary cash investments of $1,300 million. Valero also rewarded shareholders $83 million in dividends and repurchased shares worth $41 million.
Outlook
Management increased its total capital spending, including turnaround and catalyst expenditures, to $3.6 billion from $3.5 billion for 2012. The increase is primarily due to a ramp up of certain projects initially scheduled for completion in 2013. For 2013, Valero expects total capital spending between $2 million and $2.5 billion.
Our Take
We remain upbeat on Valero for 2012 as well as the next year and foresee attractive opportunities that will position it uniquely among refiners to grow earnings and cash flow per share going forward. We also appreciate Valero’s endeavor of consistently reviewing its refining portfolio, and upgrading its asset base by selling or acquiring refinery properties that do not fit into the business mix.
Valero has announced its plan to separate its retail business from the remainder of the company. The company is hopeful that this move would place it advantageously to concentrate on their industry-specific strategies.
Again, Valero remains optimistic about the ongoing economic growth projects. During the quarter, the company completed its major turnaround maintenance at its St. Charles and McKee refineries. Further, the hydrocrackers at Port Arthur are likely to be become fully operation by the fourth quarter.
However, threats include government regulations, weather conditions, crude oil and natural gas prices as well as renewable fuel prices. These can result in increased costs, reduced growth and fines or other sanctions.
The company has a Zacks #3 Rank, which translates to a short-term Hold rating. We are maintaining our long-term Neutral recommendation on Valero. The company’s peers include Chevron Corporation (CVX) and Hess Corporation (HES).
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